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AbstractThe Chinese economy has undergone a significant transformation in the last quarter of a century. The restructuring of economic institutions has attracted considerable academic attention and has spawned a substantial number of scholarly investigations. The voluminous literature that has emerged nevertheless contains some fundamental gaps and is not entirely balanced. Some recent studies have challenged the assumptions upon which the entire edifice rests and have painted a far more cautious picture of the economy and political system in the coming years. This picture, in turn, needs to be extended, refined and, if possible, at least partially validated.

Exchange rate regimes do not operate in an institutional vacuum, even when the scope for exercising policy discretion is distinctly limited. The Hong Kong linked exchange rate system is no exception. An interesting feature of the institutional environment in this case, not highlighted previously, is the apparent divergence in the assumptions of policymakers and market players regarding the merits of this mechanism in particular and currency boards in general. The corollary is that the Hong Kong monetary authorities need to intensify their efforts to disseminate relevant information, focusing especially on targets in the financial sector.